February 18, 2011 / 12:08 IST
Anglo-Australian miner Rio Tinto's USD 3.9 billion offer for Africa-focused coal miner Riversdale expires on March 4 and a victory for Rio is far from certain.
Tata Steel, Riversdale's largest shareholder with 24%, has not said whether it will accept the offer, while Brazil's CSN recently lifted its stake to 19.9%, raising the risk the two shareholders may try to thwart Rio's attempts to gain full control.
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Here are the possible ways the deal may pan out:
Rio wins majority control but does not proceed to a full takeoverThe key to the bid's success is Tata Steel and CSN, and Rio needs at least one of the two on board. Neither is expected to block the offer, but they want to leverage their stakes as bargaining chips for future coking coal off-take negotiations. If Tata and CSN keep their stakes, Rio could still take control of Riversdale but not proceed to a full takeover. Under this scenario, Riversdale would stop trading on the Australian stock market and Rio could negotiate full ownership with the big shareholders at a later stage. Tata has sent out mixed messages about its intentions but executives have described its stake as "strategic" and "long term".Scenario: Most likelyRio's offer is successful:Rio Tinto has another two weeks to secure the minimum 50.1% of shareholder acceptances it needs to get the A$16 per share offer across the line. Again, proceeding to a full takeover depends on Tata and CSN. While the take-up of acceptances has been unusually slow, Rio secured pre-bid agreements for 14.9% of Riversdale's shares. Australia's Foreign Investment Review Board has also cleared the bid. Smaller shareholders are unlikely to act until the top stakeholders make their move.Probability: Possible
Rival offer:CSN last week upped its stake to just below the 20% threshold which would spark a compulsory acquisition under the Australian law. This prompted speculation CSN, whose deal-hungry Chief Executive Benjamin Steinbruch has a USD 7 billion warchest, may be gearing up to make its own bid. However, sources and analysts have played down the scenario.
They say CSN and Tata's main interest in Riversdale is locking in coking coal supplies for their steel mills and that they do not have the operational capacity to take on Riversdale's mining projects in Mozambique. Meanwhile, debt-laden Tata does not have the fire power to make a bid, according to analysts.No other rival bidders have emerged although sources say Riversdale management did have talks in the past with Brazil's Vale, Xstrata and others about joint ventures. An Indian state consortium hired bankers last month to look at a possible rival bid but later said it had decided against making an offer. Sources close to Rio Tinto and Riversdale said they never took the consortium's interest seriously.
Probability: Unlikely
Rio extends its offerThe miner can still extend its offer beyond March 4 if it does not look like getting enough acceptances. With Tata and CSN keen to maximise their leverage by holding out longer than the other, analysts believe this remains a likely scenario.Probability: PossibleStory continues below Advertisement
Rio raises its offerSome believe CSN and Tata are using their stakes as leverage to force Rio Tinto into raising its offer price. However, Riversdale shares are trading below the A$16 offer, suggesting investors believe this is unlikely. Analysts say Rio is more likely to walk away than raise the offer. Probability: Less likely
Rio Tinto walks awayRio Tinto may walk away from the offer if it cannot reach its minimum acceptance condition of 50.1%. While Tata and CSN have the power to block the bid, it is also not in their interest to block the deal as Riversdale's shares would likely fall. The stock was trading around A$14.10 before news of Rio Tinto's interest in Riversdale broke.Probability: Less likely Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
